Eleven eurozone countries agreed on Tuesday (9 October) to press ahead with a disputed tax on financial transactions aimed at making traders share the cost of fixing a crisis that has rocked the single currency area.
The initiative, pushed hard by Germany and France but strongly opposed by Britain, Sweden and other proponents of free markets, gained critical mass at a European Union finance ministers' meeting in Luxembourg, when more than the required nine states agreed to use a treaty provision to launch the tax.
"Today we have received a clear – and very welcome – signal that there will be enough Member States on board for an EU Financial Transactions Tax," said Algirdas Šemeta, EU taxation commissioner.
Šemeta indicated that he had already received seven letters – from Germany, France, Belgium, Austria, Slovenia, Portugal and Greece – expressing their intention to open an "enhanced cooperation" procedure under the EU treaty to launch the FTT.
"Today we got clear assurances that Italy, Spain, Estonia and Slovakia will send theirs very soon," the Commissioner added in a statement.
"This is a small step for 11 countries but a giant leap for Europe," Austrian Deputy Finance Minister Andreas Schieder said. "The way is now clear for a just contribution from the banking and financial sector for financing the burdens of the crisis."
Another step towards 'Two-speed Europe'
The deal raised the prospect of a pioneer group of European states for the first time launching a joint tax without the unanimous backing of the 27-nation bloc, a move that critics say will fragment the Union's single market for financial services, mainly based in the City of London.
But this view was not shared by Šemeta who said the 11-country FTT will "prevent a patchwork of national bank taxes from creating difficulties for businesses in the EU's single market".
It comes as EU leaders are contemplating creating a separate budget for the 17-nation eurozone alongside the common EU budget, according to leaked conclusions drafted for a summit next week - another step towards a "two-speed Europe".
Šemeta called the transaction tax a source of new revenue from an under-taxed business sector, and a means of encouraging more responsible trading.
No agreement yet on how money should be spent
Austrian Finance Minister Maria Fekter said the 11 countries would present a model for how the tax would work by the end of the year, and it was realistic to expect the tax to be implemented by 2014.
Šemeta said countries aiming to launch the tax did not yet agree where the proceeds should go or how they should be spent.
"Some of them would like to spend it individually. Some prefer to use part of the proceeds to finance the EU budget. It is premature to say what will be the final outcome," he said.
The breakthrough was a surprise to many EU diplomats who had thought Germany might fail to convince sufficient countries to join the plan, which has been in the works for two years.
After heavy diplomatic pressure from Berlin, Spain and Italy agreed to support the measure, as well as Slovakia and Estonia.
The European Commission has said a tax on stocks, bonds and derivatives trades from 2014 could raise up to €57 billion a year if applied across all EU countries.
However, critics say it could distort the EU's single market by giving financial companies incentives to shift their trading activities to European financial centres where the tax is not levied - or away from Europe altogether.
"People will arbitrage it. People will find a way around it," said David Stewart, CEO of London-based hedge fund firm Odey Asset Management.
"If someone really wants to buy a company that's good, I'm sure they'll keep on buying it. But if it's a synthetic derivative then they may go somewhere else ... More volume will go through London."
Britain, home to the region's biggest trading centre, will not join the scheme.
Martin Schulz, president of the European Parliament, said the FTT will provide "a valuable source of new revenue coming from an under-taxed sector", and a way of encouraging more responsible financial trading.
"The European Parliament has been calling for and supporting the FTT for more than two years and I am satisfied it will soon see the light of day with up to 11 countries ready to press ahead. Although we would have preferred an EU-wide FTT, enhanced cooperation with up to 11 Member States is a good beginning. I salute those countries who are leading the introduction of the FTT."
Greek MEP Anni Podimata (Socialists & Democrats), the MEP drafting the Parliament's position on the FTT, was equally enthusiastic. "It is a socially fair tax, an indispensible part of a complete and coherent solution to exit the crisis. It will target the most speculative activities and at the same time provide finances equal to more than half of the EU's annual budget at a time of intense fiscal consolidation."
Emilie Turunen, a Green MEP from Denmark, stated hailed the agreement on the FTT as "a landmark moment" for efforts to put in place an FTT at global level. "We hope that the Commission will take on board some of the recommendations from the European Parliament including the proposal on an 'issuance principle' whereby financial institutions located outside the EU would also be obliged to pay the FTT if they traded securities originally issued within the EU."
- 13 Nov. 2012: European Commission to submit draft decision to launch FTT at a meeting of finance ministers (ECOFIN).
- By 2014: FTT could be in place.